<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 28, 1998
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-19292
BLUEGREEN CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
- ------------------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4960 Blue Lake Drive, Boca Raton, Florida 33431
- ----------------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(561) 912-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of August 6, 1998, there were 20,913,228 shares issued, 449,800 treasury
shares and 20,463,428 shares of Common Stock, $.01 par value per share,
outstanding.
<PAGE> 2
BLUEGREEN CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS PAGE
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEETS AT
JUNE 28, 1998 AND MARCH 29, 1998 ............................................ 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - THREE MONTHS
ENDED JUNE 28, 1998 AND JUNE 29, 1997 ....................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS
ENDED JUNE 28, 1998 AND JUNE 29, 1997 ....................................... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ............................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION ............................... 15
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK ............................................... 25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ................................................................ 25
ITEM 2. CHANGES IN SECURITIES ............................................................ 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .................................................. 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............................. 26
ITEM 5. OTHER INFORMATION ................................................................ 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................................. 26
SIGNATURES..................................................................................... 27
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 29, JUNE 28,
1998 1998
---- ----
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents (including restricted cash of
approximately $13.2 million and $11.0 million at
March 29, 1998 and June 28, 1998, respectively) .............. $ 31,065 $ 69,953
Contracts receivable, net ....................................... 15,484 17,959
Notes receivable, net ........................................... 79,785 55,269
Investment in securities ........................................ 10,941 14,088
Inventory, net .................................................. 107,198 109,530
Property and equipment, net ..................................... 17,223 19,583
Other assets .................................................... 11,267 14,740
--------- ---------
TOTAL ASSETS ................................................. $ 272,963 $ 301,122
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable ................................................ $ 5,265 $ 5,773
Accrued liabilities and other ................................... 19,023 17,877
Receivable-backed notes payable ................................. 48,694 13,039
Lines-of-credit and notes payable ............................... 72,396 19,667
Deferred income ................................................. 8,392 8,508
Deferred income taxes ........................................... 8,011 10,542
10.50% senior secured notes payable ............................. -- 110,000
8.00% convertible subordinated notes payable to related
parties ..................................................... 6,000 6,000
8.25% convertible subordinated debentures ....................... 34,739 34,371
--------- ---------
TOTAL LIABILITIES ............................................ 202,520 225,777
Minority interest ............................................... 450 468
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000 shares authorized;
none issued .................................................. -- --
Common stock, $.01 par value, 90,000 shares
authorized; 20,761 and 20,893 shares issued at March 29, 1998
and June 28, 1998, respectively ............................. 208 209
Additional paid-in capital ...................................... 71,932 72,757
Treasury stock, 450 common shares at cost at both
March 29, 1998 and June 28, 1998 ............................ (1,389) (1,389)
Net unrealized gains on investments available-for-sale, net
of income taxes .............................................. 405 405
Retained earnings (accumulated deficit) ......................... (1,163) 2,895
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ................................... 69,993 74,877
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 272,963 $ 301,122
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at March 29, 1998 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 29, JUNE 28,
1997 1998
---- ----
<S> <C> <C>
REVENUES:
Sales of real estate ............................... $ 33,091 $ 55,658
Other resort services revenue ...................... -- 2,476
Interest income .................................... 1,901 3,763
-------- --------
34,992 61,897
COSTS AND EXPENSES:
Cost of real estate sold ........................... 15,156 20,868
Cost of other resort services ...................... -- 2,251
Selling, general and administrative expense ........ 15,011 27,568
Interest expense ................................... 1,659 3,745
Provisions for losses .............................. 311 293
-------- --------
32,137 54,725
-------- --------
Income from operations ................................ 2,855 7,172
Other income .......................................... 92 2,425
-------- --------
Income before income taxes ............................ 2,947 9,597
Provision for income taxes ............................ 1,208 3,839
Minority interest in income of consolidated subsidiary -- 18
-------- --------
Income before extraordinary item ...................... 1,739 5,740
Extraordinary loss on early extinguishment of debt, net
of income taxes ................................... -- (1,682)
-------- --------
NET INCOME ............................................ $ 1,739 $ 4,058
======== ========
EARNINGS PER COMMON SHARE:
Basic:
Income before extraordinary item .................. $ 0.09 $ 0.28
Extraordinary loss on early extinguishment of debt,
net of income taxes ........................... -- (0.08)
-------- --------
Net income ........................................ $ 0.09 $ 0.20
======== ========
Diluted:
Income before extraordinary item .................. $ 0.08 $ 0.23
Extraordinary loss on early extinguishment of debt,
net of income taxes ........................... -- (0.06)
-------- --------
Net income ........................................ $ 0.08 $ 0.17
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
Basic ................................................. 20,152 20,349
======== ========
Diluted ............................................... 21,677 27,508
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 29, JUNE 28,
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................................... $ 1,739 $ 4,058
Adjustments to reconcile net income to net
cash flow provided by operating activities:
Extraordinary loss on early extinguishment of debt,
net of taxes .......................................... -- 1,682
Minority interest in income of consolidated subsidiary .... -- 18
Depreciation and amortization ............................. 421 553
Gain on sale of notes receivable .......................... -- (2,053)
Gain on sale of property and equipment .................... (121) (267)
Provisions for losses ..................................... 311 293
Provision for deferred income taxes ....................... 1,208 3,839
Interest accretion on investment in securities ............ (336) (383)
Proceeds from sale of notes receivable .................... -- 31,305
Proceeds from borrowings collateralized by notes
receivable ............................................ 10,117 1,742
Payments on borrowings collateralized by notes receivable.. (3,031) (574)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Contracts receivable ........................................ (2,779) (2,475)
Notes receivable ............................................ (11,448) (10,665)
Inventory ................................................... 6,895 303
Other assets ................................................ 288 554
Accounts payable, accrued liabilities and other ............. 1,847 (523)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... 5,111 27,407
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment ............................ (1,187) (3,349)
Sales of property and equipment ................................ -- 872
Cash received from investment in securities .................... 505 395
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ............................. (682) (2,082)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of 10.50% senior secured notes payable .. -- 110,000
Proceeds from borrowings under line-of-credit facilities
and other notes payable ..................................... 19,189 --
Payments under line-of-credit facilities and other notes payable (18,132) (91,825)
Payment of debt issuance costs ................................. (463) (4,885)
Payments for treasury stock .................................... (19) --
Proceeds from exercise of employee and director stock options .. -- 273
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ......................... 575 13,563
--------- ---------
Net increase in cash and cash equivalents ......................... 5,004 38,888
Cash and cash equivalents at beginning of period .................. 11,597 31,065
--------- ---------
Cash and cash equivalents at end of period ........................ 16,601 69,953
Restricted cash and cash equivalents at end of period ............. (10,567) (11,036)
--------- ---------
Unrestricted cash and cash equivalents at end of period ........... $ 6,034 $ 58,917
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
BLUEGREEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
JUNE 29, JUNE 28,
1997 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING, INVESTING
AND FINANCING ACTIVITIES
Inventory acquired through financing ................. $ 6,326 $ 500
=========== ======
Inventory acquired through foreclosure or
deedback in lieu of foreclosure ..................... $ 949 $2,134
=========== ======
Conversion of 8.25% convertible subordinated
debentures into common stock ....................... $ -- $ 368
=========== ======
Sale of notes receivable in exchange for investment
in securities ...................................... $ -- $3,160
=========== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The financial information furnished herein reflects all adjustments consisting
of normal recurring accruals that, in the opinion of management, are necessary
for a fair presentation of the results for the interim periods. The results of
operations for the three-month period ended June 28, 1998 are not necessarily
indicative of the results to be expected for the fiscal year ending March 28,
1999. For further information, refer to the consolidated financial statements
and notes thereto included in Bluegreen Corporation's (the Company's) Annual
Report to Shareholders for the fiscal year ended March 29, 1998.
ORGANIZATION
The Company is a leading marketer of vacation and residential lifestyle choices
through its resort and residential land businesses which are located
predominantly in the Southeastern, Southwestern and Midwestern United States.
The Company's resort business (the Resorts Division) strategically acquires,
develops and markets Timeshare Interests in resorts generally located in
popular, high-volume, "drive-to" vacation destinations. Timeshare Interests
typically entitle the buyer to a fully-furnished vacation residence for an
annual one-week period in perpetuity (Timeshare Interests). The Company
currently markets and sells Timeshare Interests in nine resorts located in the
United States and the Caribbean. The Company's residential land business (the
Residential Land Division) strategically acquires, develops and subdivides
property and markets the subdivided residential lots to retail customers seeking
to build a home in a high quality residential setting. During the three months
ended June 28, 1998, sales of real estate generated by the Company's Resorts
Division and Residential Land Division comprised approximately 43% and 55%,
respectively, of the Company's total sales of real estate. The Company also
generates significant interest income by providing financing to individual
purchasers of Timeshare Interests sold by the Resorts Division and, to a lesser
extent, land sold by the Residential Land Division.
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company, all of its wholly-owned subsidiaries and entities in which the Company
holds a controlling financial interest. All significant intercompany balances
and transactions are eliminated.
USE OF ESTIMATES
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
EARNINGS (LOSS) PER COMMON SHARE
In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", which became effective for the Company's quarter ended December 28,
1997. Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding. Diluted
earnings (loss) per common share is computed in the same manner as basic
earnings per share, but also gives effect to all dilutive stock options using
the treasury stock method and includes an adjustment, if dilutive, to both net
income and shares outstanding as if the Company's 8.00% convertible subordinated
notes payable and 8.25% convertible subordinated debentures were converted into
common stock on March 31, 1997 or the date of issuance, if later. The earnings
(loss) per common
7
<PAGE> 8
share and weighted average number of common and common equivalent shares for the
three-month period ended June 29, 1997 have been restated in accordance with
SFAS No. 128.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 29, JUNE 28,
1997 1998
-----------------------
<S> <C> <C>
Basic earnings per share - numerators:
Income before extraordinary item ................... $ 1,739 $ 5,740
Extraordinary loss on early extinguishment of debt,
net of income taxes ............................ -- (1,682)
-----------------------
Net income ......................................... $ 1,739 $ 4,058
=======================
Diluted earnings per share - numerators:
Income before extraordinary item - basic ........... $ 1,739 $ 5,740
Effect of dilutive securities (net of tax effects):
8.25% convertible subordinated debentures ....... -- 429
8.00% convertible subordinated notes payable .... -- 72
-----------------------
-- 501
-----------------------
Income before extraordinary item - diluted ......... 1,739 6,241
Extraordinary loss on early extinguishment of debt,
net of income taxes ............................ -- (1,682)
-----------------------
Net income - diluted ............................... $ 1,739 $ 4,559
=======================
Denominator:
Denominator for basic earnings per share - weighted
average shares ................................. 20,152 20,349
Effect of dilutive securities:
Stock options ................................... 1,525 1,423
8.25% convertible subordinated debentures ....... -- 4,205
8.00% convertible subordinated notes payable .... -- 1,531
-----------------------
Dilutive potential common shares ................... 1,525 7,159
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions ... 21,677 27,508
=======================
Basic earnings per common share:
Income before extraordinary item ................... $ 0.09 $ 0.28
Extraordinary loss on early extinguishment of debt,
net of income taxes ............................ -- (0.08)
-----------------------
Net income ......................................... $ 0.09 $ 0.20
=======================
Diluted earnings per common share:
Income before extraordinary item ................... $ 0.08 $ 0.23
Extraordinary loss on early extinguishment of debt,
net of income taxes ............................ -- (0.06)
-----------------------
Net income ......................................... $ 0.08 $ 0.17
=======================
</TABLE>
8
<PAGE> 9
COMPREHENSIVE INCOME
As of March 30, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity. SFAS No. 130
requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive income. During the first quarter of
fiscal 1998 and 1999, total comprehensive income approximated net income.
SEGMENT INFORMATION
Effective March 30, 1998, the Company adopted SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 superseded SFAS
No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports, other than in the initial year of adoption. SFAS No.
131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS No. 131
did not affect results of operations or financial position, but will affect the
disclosure of segment information in the Company's fiscal 1999 annual financial
statements.
START-UP COSTS
In April, 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES.
The SOP is effective for the Company's fiscal 2000, and requires that start-up
costs capitalized prior to January 1, 1999 be written-off and any future
start-up costs to be expensed as incurred. The Company estimates that adopting
this SOP will have no significant impact on its fiscal 2000 results of
operations.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation
2. ACQUISITION
Effective September 30, 1997, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of RDI Group Inc. and Resort
Title Agency, Inc. (collectively "RDI") for a purchase price of $7.5 million
consisting of $6 million cash and a $1.5 million, 9% promissory note due October
3, 1999. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of RDI have been included
in the Company's condensed consolidated financial statements from September 30,
1997.
Approximately $1.1 million of goodwill, which is included in other assets on the
condensed consolidated balance sheet, was recognized in connection with the
acquisition of RDI. The goodwill is being amortized over 25 years.
The following pro forma financial information presents the combined results of
operations of the Company and RDI as if the acquisition had occurred on March
31, 1997, after giving effect to certain adjustments, including increased
interest expense on debt related to the acquisition, and related income tax
effects. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the Company and RDI
constituted a single entity during such period.
Three months ended June 29, 1997
(unaudited - amounts in thousands, except per share data)
Net revenues $ 42,204
=========
Net income $ 2,878
=========
Earnings per share:
Basic $ 0.14
=========
Diluted $ 0.13
=========
9
<PAGE> 10
3. SALE OF NOTES RECEIVABLE
On June 26, 1998 the Company sold approximately $32.4 million aggregate
principal amount of timeshare notes receivable (the Receivables) to Bluegreen
Receivables Finance Corporation III, a wholly-owned special purpose subsidiary
of the Company (BRFC). Concurrently, BRFC sold the Receivables to an
unaffiliated financial institution (the Purchaser) pursuant to an Asset Purchase
Agreement dated as of June 26, 1998 (the Purchase Agreement).
A purchase price equal to approximately 96.4% of the principal balance of the
Receivables sold was paid by the Purchaser at closing in cash. In addition, BRFC
will be entitled to receive a deferred payment after the Purchaser has received
a return equal to the weighted average term treasury rate plus 1.4%, (6.924% for
this sale) and all servicing, custodial and similar fees and expenses have been
paid and a cash reserve account has been funded. The Receivables were sold
without recourse to the Company or BRFC except for breaches of representations
and warranties made at the time of sale. The Company will act as servicer for
the Receivables and will be paid a fee. In connection with the sale, the Company
recognized a $2.1 million gain which is included in other income in the
condensed consolidated statement of income for the three months ended June 28,
1998, and recorded a $3.1 million available-for-sale investment in the residual
cash flow of the receivable pool (i.e., the deferred payment) which is included
in investments in securities in the condensed consolidated balance sheet as of
June 28, 1998.
Under the Purchase Agreement, BRFC will be entitled to sell up to $100 million
aggregate principal amount of timeshare receivables to the Purchaser. The
purchase facility has detailed requirements with respect to the eligibility of
receivables for purchase and a two-year term. The Purchaser's obligation to
purchase under the purchase facility will terminate upon the occurrence of
specified trigger events. The purchase facility includes various conditions to
purchase and other provisions customary for securitizations of this type.
4. INVENTORY
The Company's inventories by geographic region, which consist of real estate
acquired for sale, are summarized below (amounts in thousands).
<TABLE>
<CAPTION>
MARCH 29, 1998
----------------------------------------------------------------
GEOGRAPHIC REGION RESORTS LAND COMMUNITIES TOTAL
- ----------------- ------- ---- ------------ -----
<S> <C> <C> <C> <C>
Southeast............ $35,846 $ 12,911 $2,674 $ 51,431
Southwest............ -- 22,163 -- 22,163
Aruba................ 17,113 -- -- 17,113
Midwest.............. 6,316 6 -- 6,322
Rocky Mountains ..... -- 4,654 -- 4,654
Mid-Atlantic......... -- 3,009 -- 3,009
West ................ -- 2,196 -- 2,196
Other................ -- 310 -- 310
----------- ---------- ----------- ----------
Totals............... $59,275 $45,249 $2,674 $107,198
=========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1998
------------------------------------------------------------------
GEOGRAPHIC REGION RESORTS LAND COMMUNITIES TOTAL
- ----------------- ------- ---- ------------ -----
<S> <C> <C> <C> <C>
Southeast............ $36,174 $13,888 $1,951 $ 52,013
Southwest............ -- 23,609 -- 23,609
Aruba................ 17,000 -- -- 17,000
Midwest.............. 8,286 106 -- 8,392
Rocky Mountains ..... -- 2,650 -- 2,650
Mid-Atlantic......... -- 2,743 -- 2,743
West ................ -- 1,879 -- 1,879
Other................ -- 1,244 -- 1,244
------------- --------- ----------- -----------
Totals............... $61,460 $46,119 $1,951 $109,530
============= ========= =========== ===========
</TABLE>
10
<PAGE> 11
5. SENIOR SECURED NOTES
On April 1, 1998, the Company consummated a private placement offering (the
Offering) of $110 million in aggregate principal amount of 10.5% senior secured
notes due April 1, 2008 (the Notes). Interest on the Notes is payable
semiannually on April 1 and October 1 of each year, commencing October 1, 1998.
The Notes are redeemable at the option of the Company, in whole or in part, in
cash, on or after April 1, 2003, together with accrued and unpaid interest, if
any, to the date of redemption at the following redemption prices: 2003 -
105.25%; 2004 - 103.50%; 2005 - 101.75% and 2006 and thereafter - 100.00%. In
addition, prior to April 1, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes with the proceeds of one or more public
equity offerings, at a redemption price equal to 110.5% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption,
provided that at least $65 million principal amount of Notes remains outstanding
after any such redemption. The Notes are senior obligations of the Company and
will rank PARI PASSU in right of payment with all existing and future senior
indebtedness of the Company and will rank senior in right of payment to all
existing and future subordinated obligations of the Company. None of the assets
of Bluegreen Corporation will secure its obligations under the Notes, and the
Notes will be effectively subordinated to secured indebtedness of the Company to
any third party to the extent of assets serving as security therefor. The Notes
are unconditionally guaranteed, jointly and severally, by each of the Company's
subsidiaries (the Subsidiary Guarantors), with the exception of Bluegreen
Properties N.V., Resort Title Agency, Inc., any special purpose finance
subsidiary, any subsidiary which is formed and continues to operate for the
limited purpose of holding a real estate license and acting as a broker, and
certain other subsidiaries which have individually less then $50,000 of assets
(collectively, Non-Guarantor Subsidiaries).
The Note guarantees are senior obligations of each Subsidiary Guarantor and rank
PARI PASSU in right of payment with all existing and future senior indebtedness
of each such Subsidiary Guarantor and senior in right of payment to all existing
and future subordinated indebtedness of each such Subsidiary Guarantor. The Note
guarantees of certain Subsidiary Guarantors are secured by a first (subject to
customary exceptions) mortgage or similar instrument (each, a Mortgage) on
certain residential land properties of such Subsidiary Guarantors (the Pledged
Properties). Absent the occurrence and the continuance of an event of default,
the Notes trustee will be required to release its lien on the Pledged Properties
as property is sold and the Trustee will not have a lien on the proceeds of any
such sale. As of June 28, 1998, the Pledged Properties had an aggregate book
value of approximately $34 million. The Notes' indenture includes certain
financial covenants including the restriction of future payments of cash
dividends.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the $22.1 million short-term
borrowing from the two investment banking firms who were the initial purchasers
of the Notes, approximately $28.9 million of line-of-credit and notes payable
balances and approximately $36.3 million of the Company's receivable-backed
notes payable. In addition, the Company paid aggregate accrued interest on the
repaid debt of approximately $1 million and $2.7 million of prepayment
penalties. The remaining net proceeds of the Offering will be used to repay
other obligations of the Company and for working capital purposes. In connection
with the Offering, the Company wrote-off approximately $692,000 of debt issuance
costs related to the extinguished debt and recognized a $1.7 million
extraordinary loss on early extinguishment of debt, net of taxes.
On June 19, 1998, the Company's Registration Statement on Form S-4 was declared
effective and registered Series B Notes, which are identical in terms to the
Notes, under the Securities Act of 1933. Subsequently, the Company made an offer
to the holders of the Notes to exchange the Notes for the Series B Notes, which
expired on August 5, 1998, with all of the Notes being exchanged.
SUPPLEMENTAL GUARANTOR INFORMATION
Management has determined that separate, full financial statements for the
Subsidiary Guarantors and Non-Guarantor Subsidiaries are not required and,
accordingly, are not provided. Supplemental financial information for Bluegreen
Corporation, its combined Non-Guarantor Subsidiaries and its combined Subsidiary
Guarantors is presented below:
11
<PAGE> 12
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATAEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JUNE 28, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ....... $ 54,625 $ 4,065 $ 11,263 $ -- $ 69,953
Contracts receivable, net ....... 392 86 17,481 -- 17,959
Notes receivable, net ........... 50 1,916 53,303 -- 55,269
Investment in securities ........ -- 14,088 -- -- 14,088
Inventory, net .................. 13,738 17,000 78,792 -- 109,530
Property and equipment, net ..... 5,080 265 14,238 -- 19,583
Investments in subsidiaries ..... 7,980 -- -- (7,980) --
Intercompany receivable ......... 64,252 2,138 -- (66,390) --
Other assets .................... 7,393 1,708 8,666 (3,027) 14,740
--------- --------- --------- --------- ---------
TOTAL ASSETS ................. $ 153,510 $ 41,266 $ 183,743 $ (77,397) $ 301,122
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable, accrued
liabilities and other .......... $ 6,311 $ 4,299 $ 21,575 $ (27) $ 32,158
Intercompany payable ............ -- -- 66,390 (66,390) --
Lines-of-credit and notes payable 117,250 17,504 16,952 (3,000) 148,706
Deferred income taxes ........... 1,714 857 7,971 -- 10,542
8.25% convertible subordinated
debentures...................... 34,371 -- -- -- 34,371
--------- --------- --------- --------- ---------
TOTAL LIABILITIES ............ 159,646 22,660 112,888 (69,417) 225,777
Minority interest ............... -- -- -- 468 468
SHAREHOLDERS' EQUITY
Common stock .................... 209 6 3 (9) 209
Additional paid-in capital ...... 72,669 495 8,089 (8,496) 72,757
Treasury stock .................. (1,389) -- -- -- (1,389)
Net unrealized gains ............ -- 405 -- -- 405
Retained earnings (accumulated
deficit)........................ (77,625) 17,700 62,763 57 2,895
--------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ... (6,136) 18,606 70,855 (8,448) 74,877
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........ $ 153,510 $ 41,266 $ 183,743 $ (77,397) $ 301,122
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATAEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 29, 1997
-----------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
REVENUES
Sales of real estate ........ $ 6,896 $ -- $ 26,195 $ -- $ 33,091
Management fee revenue ...... 2,803 -- -- (2,803) --
Interest income and other ... 68 525 1,308 -- 1,901
-------- -------- -------- -------- --------
9,767 525 27,503 (2,803) 34,992
COST AND EXPENSES
Cost of real estate sold .... 3,626 -- 11,530 -- 15,156
Management fees ............. -- 53 2,750 (2,803) --
Selling, general and
administrative expense ..... 5,808 14 9,189 -- 15,011
Interest expense ............ 820 121 718 -- 1,659
Provisions for losses ....... -- -- 311 -- 311
-------- -------- -------- -------- --------
10,254 188 24,498 (2,803) 32,137
-------- -------- -------- -------- --------
Income (loss) from operations (487) 337 3,005 -- 2,855
Other income (expense) ...... 109 -- (17) -- 92
-------- -------- -------- -------- --------
Income (loss) before income
taxes ...................... (378) 337 2,988 -- 2,947
Provision (benefit) for
income taxes ............... (155) 138 1,225 -- 1,208
-------- -------- -------- -------- --------
Net income (loss) ....... $ (223) $ 199 $ 1,763 $ -- $ 1,739
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 28, 1998
-----------------------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS ELIMINATIONS CONSOLIDATED
REVENUES
<S> <C> <C> <C> <C> <C>
Sales of real estate ........... $ 8,347 $ 3,285 $ 44,026 $ -- $ 55,658
Management fee revenue ......... 5,318 -- -- (5,318) --
Other resort services revenue .. -- 267 2,209 -- 2,476
Interest income and other ...... 369 558 2,836 -- 3,763
-------- -------- -------- -------- --------
14,034 4,110 49,071 (5,318) 61,897
COST AND EXPENSES
Cost of real estate sold ....... 2,564 959 17,345 -- 20,868
Cost of other resort services .. -- 309 1,942 -- 2,251
Management fees ................ -- 411 4,907 (5,318) --
Selling, general and
administrative expense ........ 7,445 1,717 18,406 -- 27,568
Interest expense ............... 1,007 508 2,230 -- 3,745
Provisions for losses .......... -- 115 178 -- 293
-------- -------- -------- -------- --------
11,016 4,019 45,008 (5,318) 54,725
-------- -------- -------- -------- --------
Income from operations ......... 3,018 91 4,063 -- 7,172
Other income ................... 278 2,052 95 -- 2,425
-------- -------- -------- -------- --------
Income before income taxes ..... 3,296 2,143 4,158 -- 9,597
Provision for income taxes ..... 1,318 857 1,664 -- 3,839
Minority interest in income of
consolidated subsidiary ..... -- -- -- (18) (18)
-------- -------- -------- -------- --------
Income before extraordinary item 1,978 1,286 2,494 (18) 5,740
Extraordinary loss on early
extinguishment of debt, net.. -- -- (1,682) -- (1,682)
-------- -------- -------- -------- --------
Net income ............... $ 1,978 $ 1,286 $ 812 $ (18) $ 4,058
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 14
BLUEGREEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATAEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 29, 1997
--------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided (used) by operating
activities ........................... $ 3,958 $ (233) $ 1,386 $ 5,111
-------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment .... (181) -- (1,006) (1,187)
Cash received from investment in
securities .......................... -- 505 -- 505
-------- -------- -------- --------
Net cash (used) provided by investing
activities ............................. (181) 505 (1,006) (682)
-------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings under line-of-
credit facilities and other notes ... 109 -- 19,080 19,189
payable
Payments under line-of-credit facilities
and other notes payable ............. (29) -- (18,103) (18,132)
Payment of debt issuance costs ......... -- (27) (436) (463)
Payments for treasury stock ............ (19) -- -- (19)
-------- -------- -------- --------
Net cash provided (used) by financing
activities ............................. 61 (27) 541 575
-------- -------- -------- --------
Net increase in cash and cash equivalents.. 3,838 245 921 5,004
Cash and cash equivalents at beginning of
period .................................. 3,353 3,442 4,802 11,597
-------- -------- -------- --------
Cash and cash equivalents at end of period 7,191 3,687 5,723 16,601
Restricted cash and cash equivalents at end
of period .............................. (1,207) (3,687) (5,673) (10,567)
-------- -------- -------- --------
Unrestricted cash and cash equivalents at
end of period .......................... $ 5,984 $ -- $ 50 $ 6,034
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 28, 1998
-----------------------------------------------------------
COMBINED COMBINED
BLUEGREEN NON-GUARANTOR SUBSIDIARY
CORPORATION SUBSIDIARIES GUARANTORS CONSOLIDATED
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided (used) by
operating activities ....................... $ (62,607) $ 2,404 $ 87,610 $ 27,407
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment ......... (2,279) (44) (1,026) (3,349)
Sales of property and equipment ............. 864 -- 8 872
Cash received from investment in
securities ............................... -- 395 -- 395
--------- --------- --------- ---------
Net cash (used) provided by investing
activities .................................. (1,415) 351 (1,018) (2,082)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings under line-of-
credit facilities and other notes payable 110,000 -- -- 110,000
Payments under line-of-credit facilities
and other notes payable .................. (3,185) (3,565) (85,075) (91,825)
Payment of debt issuance costs .............. (4,541) (311) (33) (4,885)
Proceeds from exercise of employee and
director stock options ................... 273 -- -- 273
--------- --------- --------- ---------
Net cash provided by financing activities ...... 102,547 (3,876) (85,108) 13,563
--------- --------- --------- ---------
Net increase in cash and cash equivalents ...... 38,525 (1,121) 1,484 38,888
Cash and cash equivalents at beginning of period 16,100 5,186 9,779 31,065
--------- --------- --------- ---------
Cash and cash equivalents at end of period ..... 54,625 4,065 11,263 69,953
Restricted cash and cash equivalents at end
of period .................................... (2,048) (1,427) (7,561) (11,036)
--------- --------- --------- ---------
Unrestricted cash and cash equivalents at
end of period ............................... $ 52,577 $ 2,638 $ 3,702 $ 58,917
========= ========= ========= =========
</TABLE>
14
<PAGE> 15
6. CONVERTIBLE SUBORDINATED DEBENTURES
During the three months ended June 28, 1998, holders of $368,000 in aggregate
principal amount of the Company's 8.25% convertible subordinated debentures
elected to convert said debentures into an aggregate 44,658 shares of the
Company's Common Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Reform Act of 1995 (the Act) and is making the following
statements pursuant to the Act in order to do so. Certain statements under this
Item 2 and elsewhere in this report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended. Such forward-looking statements
are risks and uncertainties, many of which are beyond the Company's control,
that could cause the actual results, performance or achievements of the Company,
or industry trends, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, investors are cautioned not to place undue reliance on such
forward-looking statements and no assurance can be given that the plans,
estimates and expectations reflected in such statements will be achieved. The
Company wishes to caution readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company:
a) Changes in national, international or regional economic conditions that can
affect the real estate market, which is cyclical in nature and highly
sensitive to such changes, including, among other factors, levels of
employment and discretionary disposable income, consumer confidence,
available financing and interest rates.
b) The imposition of additional compliance costs on the Company as the result
of changes in any environmental, zoning or other laws and regulations that
govern the acquisition, subdivision and sale of real estate and various
aspects of the Company's financing operation.
c) Risks associated with a large investment in real estate inventory at any
given time (including risks that real estate inventories will decline in
value due to changing market and economic conditions and that the
development and carrying costs of inventories may exceed those
anticipated).
d) Risks associated with an inability to locate suitable inventory for
acquisition.
e) Risks associated with delays in bringing the Company's inventories to
market due to, among other things, changes in regulations governing the
Company's operations, adverse weather conditions or changes in the
availability of development financing on terms acceptable to the Company.
f) Changes in applicable usury laws or the availability of interest deductions
or other provisions of federal or state tax law.
g) A decreased willingness on the part of banks to extend direct customer lot
financing, which could result in the Company receiving less cash in
connection with the sales of real estate and/or lower sales.
h) The inability of the Company to find external sources of liquidity on
favorable terms to support its operations, acquire, carry and develop land
and timeshare inventories and satisfy its debt and other obligations.
i) The inability of the Company to find sources of capital on favorable terms
for the pledge of land and timeshare notes receivable.
j) An increase in prepayment rates, delinquency rates or defaults with respect
to Company-originated loans or an increase in the costs related to
reacquiring, carrying and disposing of properties reacquired through
foreclosure or deeds in lieu of foreclosure.
k) Costs to develop inventory for sale and/or selling, general and
administrative expenses exceeding those anticipated.
15
<PAGE> 16
l) An increase or decrease in the number of land or resort properties subject
to percentage of completion accounting which requires deferral of profit
recognition on such projects until development is substantially complete.
m) The failure of the Company to satisfy the covenants contained in the
indentures governing certain of its debt instruments and other credit
agreements which, among other things, place certain restrictions on the
Company's ability to incur debt, incur liens and pay dividends.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes thereto included in the
Company's Annual Report to Shareholders for the fiscal year ended March 29,
1998.
GENERAL
Real estate markets are cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence,
available financing and interest rates. A downturn in the economy in general or
in the market for real estate could have a material adverse effect on the
Company.
The Company recognizes revenue on residential land and Timeshare Interest sales
when a minimum of 10% of the sales price has been received in cash, the refund
or rescission period has expired, collectibility of the receivable representing
the remainder of the sales price is reasonably assured and the Company has
completed substantially all of its obligations with respect to any development
relating to the real estate sold. In cases where all development has not been
completed, the Company recognizes revenue in accordance with the percentage of
completion method of accounting. Under this method of revenue recognition,
income is recognized as work progresses. Measures of progress are based on the
relationship of costs incurred to date to expected total costs. The Company has
been dedicating greater resources to more capital intensive residential land and
timeshare projects. As a result, the results for the three months ended June 28,
1998 reflect an increased amount of revenue deferred under the percentage of
completion method of accounting.
Costs associated with the acquisition and development of timeshare resorts and
residential land properties, including carrying costs such as interest and
taxes, are capitalized as real estate and development costs and allocated to
cost of real estate sold as the respective revenue is recognized.
Effective September 30, 1997, a wholly-owned subsidiary of the Company acquired
all of the issued and outstanding common stock of RDI Group Inc. and Resort
Title Agency, Inc. (collectively RDI) for a purchase price of $7.5 million
consisting of $6 million cash and a $1.5 million, 9% promissory note due October
3, 1999. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of RDI have been included
in the Company's condensed consolidated financial statements from September 30,
1997. Approximately $1.1 million of goodwill, which is included in other assets
on the consolidated balance sheet, was recognized in connection with the
acquisition of RDI. The goodwill is being amortized over 25 years.
On December 15, 1997, the Company invested $250,000 of capital in Bluegreen
Properties N.V. (BPNV), an entity organized in Aruba that previously had no
operations, in exchange for a 50% ownership interest. Concurrently, the Company
and an affiliate of the other 50% owner of BPNV (who is not an affiliate of the
Company), each loaned BPNV $3 million pursuant to promissory notes due on
December 15, 2000 and bearing interest at the prime rate plus 1%. BPNV then
acquired from a third party approximately 8,000 unsold timeshare intervals at
the La Cabana Beach & Racquet Club (the Aruba Resort), a fully developed
timeshare resort in Oranjestad, Aruba in exchange for $6 million cash and the
assumption of approximately $16.6 million of interest-free debt from a bank in
Aruba. The debt was recorded by BPNV at approximately $12.5 million, which
reflects a discount based on an imputed interest rate of 12%. The debt is to be
repaid over five years through release-prices as intervals are sold, subject to
minimum monthly payments of approximately $278,000. In addition to its 50%
ownership interest, the Company will receive a quarterly management fee from
BPNV equal to 7% of BPNV's net sales in exchange for the Company's involvement
in the day-to-day operations of BPNV. The Company also has majority control of
BPNV's board of directors and has a controlling financial interest in BPNV.
Therefore, the accounts of BPNV are included in the Company's consolidated
financial statements from December 15, 1997.
16
<PAGE> 17
The Company has historically experienced and expects to continue to experience
seasonal fluctuations in its gross revenues and net earnings. This seasonality
may cause significant fluctuations in the quarterly operating results of the
Company. As the Company's timeshare revenues grow as a percentage of total
revenues and in more diverse geographic areas, the Company believes that the
fluctuations in revenues due to seasonality may be mitigated. In addition, other
material fluctuations in operating results may occur due to the timing of
development and the Company's use of the percentage of completion method of
accounting. Management expects that the Company will continue to invest in
multi-year, capital-intensive projects. No assurances can be given that the
amount of revenue deferred under the percentage of completion accounting method
will not increase.
The Company believes that inflation and changing prices have not had a material
impact on its revenues and results of operations during the three months ended
June 28, 1998 or June 29, 1997. Based on the current economic climate, the
Company does not expect that inflation and changing prices will have a material
impact on the Company's revenues or results of operations. To the extent
inflationary trends affect short-term interest rates, a portion of the Company's
debt service costs may be affected as well as the rate the Company charges on
its new receivables.
During the periods covered by this discussion, the Company's real estate
operations were managed under three divisions and much of this discussion is
organized by such divisions. The Resorts Division manages the Company's
timeshare operations and the Residential Land Division acquires large tracts of
real estate which are subdivided, improved and sold, typically on a retail
basis. The Company's Communities Division, markets factory-built manufactured
homes and lot packages and undeveloped lots. In the first quarter of fiscal 1997
(June 1996), the Company decided to focus on the expansion of the Resorts
Division and the Residential Land Division in certain locations. Consistent with
this strategy, the Company does not intend to acquire any additional communities
related inventories and present Communities Division inventories are being
liquidated through a combination of bulk sales and retail sales. As of and for
the three month period ended June 28, 1998, the Communities Division comprised
approximately 2% of consolidated inventory and sales of real estate. Therefore,
no separate discussion with respect to the Communities Division is contained
herein relative to the three-month period ended June 28, 1998 due to
immateriality.
Inventory is carried at the lower of cost, including costs of improvements and
amenities, incurred subsequent to acquisition, or fair value, net of costs to
dispose.
A portion of the Company's income historically has been comprised of gains on
sales of loans. On June 26, 1998 the Company sold approximately $32.4 million
aggregate principal amount of timeshare note receivables (the Receivables) to
Bluegreen Receivables Finance Corporation III, a wholly-owned special purpose
subsidiary of the Company (BRFC). Concurrently, BRFC sold the Receivables to an
unaffiliated financial institution (the Purchaser) pursuant to an Asset Purchase
Agreement (the Purchase Agreement). Under the Purchase Agreement, BRFC will be
entitled to sell up to $100 million aggregate principal amount of timeshare
receivables to the Purchaser. The purchase facility has detailed requirements
with respect to the eligibility of receivables for purchase and a two-year term.
A purchase price equal to approximately 96.4% of the principal balance of the
Receivables sold was paid by the Purchaser at closing in cash. In addition, BRFC
will be entitled to receive a deferred payment after the Purchaser has received
a return equal to the weighted average term treasury rate plus 1.4% and all
servicing, custodial and similar fees and expenses have been paid and a cash
reserve account has been funded. The Receivables were sold without recourse to
the Company or BRFC except for breaches of representations and warranties made
at the time of sale. The Company will act as servicer for the Receivables and
will be paid a fee. In connection with the sale, the Company recognized a $2.1
million gain which is included in other income in the condensed consolidated
statement of income for the three months ended June 28, 1998 and a $3.1 million
available-for-sale investment in the residual cash flow of the receivable pool
(i.e., the deferred payment) which is included in investments in securities in
the condensed consolidated balance sheet as of June 28, 1998.
Based on the unused capacity under the Purchase Agreement, management
anticipates that the portion of the Company's revenues comprising gains on sales
will increase significantly and will comprise a significant portion of net
income in certain interim periods. The amount of gains recorded is based in part
on management's estimates of future prepayment and default rates and other
considerations in light of then-current conditions. If actual prepayments with
respect to loans occur more quickly than was projected at the time such loans
were sold, as can occur when interest rates decline, interest would be less than
expected and earnings would be charged in the
17
<PAGE> 18
current period. If actual defaults with respect to loans sold are greater than
estimated, charge-offs would exceed previously estimated amounts and earnings
would be charged in the current period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1997 AND JUNE 28, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RESORTS RESIDENTIAL LAND COMMUNITIES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 29, 1997
Sales of real estate $ 8,958 100.0% $22,069 100.0% $ 2,064 100.0% $33,091 100.0%
Cost of real estate sold (1) 2,308 25.8% 10,788 48.9% 2,060 99.8% 15,156 45.8%
------- ----- ------- ----- ------- ----- -------- -----
Gross profit 6,650 74.2% 11,281 51.1% 4 .2% 17,935 54.2%
Field selling, general and
administrative expense (2) 5,852 65.3% 6,462 29.2% 81 3.9% 12,395 37.5%
------- ----- ------- ----- ------- ----- -------- -----
Field operating profit (loss) (3) $ 798 8.9% $ 4,819 21.9% $ (77) (3.7)% $ 5,540 16.7%
======= ===== ======= ===== ======= ===== ======== =====
THREE MONTHS ENDED JUNE 28, 1998
Sales of real estate $23,962 100.0% $30,637 100.0% $1,059 100.0% $ 55,658 100.0%
Cost of real estate sold (1) 6,217 25.9% 13,820 45.1% 831 78.5% 20,868 37.5%
------- ----- ------- ----- ------- ----- -------- -----
Gross profit 17,745 74.1% 16,817 54.9% 228 21.5% 34,790 62.5%
Field selling, general and
administrative expense (2) 14,737 61.5% 8,600 28.1% 181 17.1% 23,518 42.3%
------- ----- ------- ----- ------- ----- -------- -----
Field operating profit (3) $ 3,008 12.6% $ 8,217 26.8% $ 47 4.4% $ 11,272 20.2%
======= ===== ======= ===== ======= ===== ======== =====
</TABLE>
(1) COST OF REAL ESTATE SOLD REPRESENTS THE COST OF INVENTORY INCLUDING THE
COST OF IMPROVEMENTS, AMENITIES AND, IN CERTAIN CASES, CAPITALIZED
INTEREST.
(2) GENERAL AND ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO CORPORATE OVERHEAD HAVE
BEEN EXCLUDED FROM THE TABLES. CORPORATE GENERAL AND ADMINISTRATIVE
EXPENSES TOTALED $2.5 MILLION AND $4.1 MILLION FOR THE THREE MONTHS ENDED
JUNE 29, 1997 AND JUNE 28, 1998, RESPECTIVELY.
(3) THE TABLES PRESENTED ABOVE OUTLINE SELECTED FINANCIAL DATA. ACCORDINGLY,
INTEREST INCOME, INTEREST EXPENSE, PROVISIONS FOR LOSSES, OTHER INCOME AND
INCOME TAXES HAVE BEEN EXCLUDED.
SALES. Consolidated sales of real estate increased 68.2% from $33.1 million for
the three-month period ended June 29, 1997 (the 1998 Quarter) to $55.7 million
for the three-month period ended June 28, 1998 (the 1999 Quarter). Increases in
residential land and resorts (Timeshare Interest) sales during the 1999 Quarter
were partially offset by lower Communities Division sales.
As of June 28, 1998, approximately $17.3 million in sales or $8.5 million in
estimated income was deferred under percentage of completion accounting. At
March 29, 1998, approximately $16.9 million of sales or $8.4 million in
estimated income was deferred and is included on the Condensed Consolidated
Balance Sheet under the caption Deferred Income.
RESORTS DIVISION
During the 1998 and 1999 Quarters, sales of Timeshare Interests contributed
$9.0 million or 27.1% and $24.0 million or 43.1%, respectively, of the Company's
total consolidated revenues from the sale of real estate.
The following tables set forth information for sales of Timeshare Interests
associated with the Company's Resorts Division for the periods indicated, BEFORE
giving effect to the percentage of completion method of accounting.
THREE MONTHS ENDED,
-------------------
JUNE 29, JUNE 28,
1997 1998
---- ----
Number of Timeshare Interests sold 1,056 2,794
Average sales price per Timeshare Interest $9,112 $8,479
Gross margin 74.2% 74.1%
The increase in Timeshare Interest sales during the 1999 Quarter was partially
due to the acquisition RDI effective September 30, 1997, which contributed
approximately $4.8 million in Timeshare Interest sales (595 Timeshare Interests
sold) during the 1999 Quarter. Also, BPNV, which commenced operations on
December 15, 1997,
18
<PAGE> 19
generated approximately $3.3 million in Timeshare Interest sales (449 Timeshare
Interests sold) during the 1999 Quarter. The increase in the number of Timeshare
Interests sold during the 1999 Quarter was also partially due to increased
numbers of Timeshare Interests sold at the Company's other resorts during the
1999 Quarter, specifically increases of 125; 246; 39; 81 and 280 Timeshare
Interests sold at the Company's Laurel Crest (Pigeon Forge, TN); Falls Village
(Branson, MO); Shore Crest (Myrtle Beach, SC); MountainLoft (Gatlinburg, TN) and
Harbour Lights (Myrtle Beach, SC) resorts, respectively. This increase in
Timeshare Interest sales at existing resorts is primarily due to the maturation
of projects and the increased effectiveness of marketing programs.
The decrease in average sales price per Timeshare Interest during the 1999
Quarter was due primarily to the acquisition of RDI and sales of Timeshare
Interests in Aruba, which averaged sales prices per Timeshare Interest of $7,775
and $7,316, respectively, during the 1999 Quarter. The Company's average sales
price per Timeshare Interest, excluding RDI and Aruba, was $8,926 during the
1999 Quarter. The remaining decrease is due to the Company selling a greater
volume of biennial Timeshare Interests (i.e., one week of use every other year)
and "lock-out" Timeshare Interests (e.g. a Timeshare Interest in one bedroom of
a three bedroom, dividable unit), which typically have a lower average sales
price, during the 1999 Quarter.
During the 1999 Quarter, other resort service revenue and related costs were
approximately $2.5 million and $2.3 million, respectively. Other resort services
include the resort property management services, resort title services and
certain retail amenity and lodging operations acquired in connection with the
RDI. There were no resort service operations during the 1998 Quarter.
RESIDENTIAL LAND DIVISION
During the 1998 and 1999 Quarters, residential land sales contributed $22.1
million or 66.7% and $30.6 million or 55.0%, respectively, of the Company's
total consolidated revenues from the sale of real estate.
The table set forth below outlines the number of parcels sold and the average
sales price per parcel for the Residential Land Division for the periods
indicated, BEFORE giving effect to the percentage of completion method of
accounting.
THREE MONTHS ENDED,
---------------------------
JUNE 29, JUNE 28,
1997 1998
-------- --------
Number of parcels sold 581 624
Average sales price per parcel $46,733 $49,076
Gross margin 51.1% 54.9%
The aggregate number of parcels sold and aggregate average sales price per
parcel increased from the 1998 Quarter to the 1999 Quarter due to the following:
* The Company's Winding River property in Southport, North Carolina
generated sales of 35 parcels during the 1998 Quarter as compared to 57
parcels during the 1999 Quarter. When completed, the project will feature a
host of amenities including a beach club, 27-hole championship golf course
designed by Masters Champion Fred Couples, club-house, river amenities and
bike paths.
* The Company's Bentwater property in Granbury, Texas generated sales of 32
parcels during the 1998 Quarter as compared to 55 parcels during the 1999
Quarter. This project opened in February 1997 and features a private
marina, covered boat slips and pastures for horses.
* The Company's Crystal Cove property in Rockwood, Tennessee generated sales
of 17 parcels vs. 38 parcels during the 1998 Quarter and 1999 Quarter,
respectively. This project opened in March 1997 and features lake frontage
on Watts Bar Lake with boat docks.
* The average sales price per parcel at the Company's Crossroads Ranch
property in Prescott, Arizona increased from approximately $162,000 to
$182,000 during the 1998 Quarter and 1999 Quarter, respectively. The
terrain of this property includes pasture lands with seasonal creeks and
rolling hills. The Company also created deed restrictions designed to
ensure that future development on the property is compatible with the
land's ranch character.
19
<PAGE> 20
The Company plans to continue to dedicate greater resources to residential land
properties located in areas with proven records of success. These locations
include, but are not limited to, Texas, the Carolinas, Virginia, Tennessee, New
Mexico and Arizona.
The average gross margin for the Residential Land Division was 51.1% and 54.9%
for the 1998 and 1999 Quarters, respectively. The average gross margin increased
primarily due to increased sales at the Company's Winding River Property in
North Carolina and at the Company's properties in Dallas and Houston, Texas,
which generated gross margins of 70.7%, 66.8% and 56.6%, respectively, during
the 1999 Quarter. The Company's Investment Committee approves all property
acquisitions. In order to be approved for purchase by the Investment Committee,
all residential land properties are expected to achieve certain minimum
economics including a minimum gross margin. No assurances can be given that such
minimum economics will be achieved.
INTEREST INCOME
Interest income increased 97.9% from $1.9 million for the 1998 Quarter to $3.8
million for the 1999 Quarter. The Company's interest income is earned from its
receivable portfolio, securities retained pursuant to REMIC financings and cash
and cash equivalents. The increase in interest income is primarily due to an
increase in the average note receivable balance during the 1999 Quarter as
compared to the 1998 Quarter. This increase in the average note receivable
balance is due primarily to the increase in the sales of Timeshare Interests as
the Company provides financing on approximately 89% of its Timeshare Interest
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (S,G&A EXPENSE)
The Company's S,G&A Expense consists primarily of marketing costs, advertising
expenses, sales commissions and corporate overhead. S,G&A Expense totaled $15.0
million and $27.6 million for the 1998 Quarter and the 1999 Quarter,
respectively. A significant portion of S,G&A Expense is variable relative to
sales and profitability levels and, therefore, increases with growth in sales of
real estate. As a percentage of sales of real estate, S,G&A Expense (including
corporate administrative expense) increased from 42.9% in the 1998 Quarter to
44.5% in the 1999 Quarter. This is due primarily to the increase in Resorts
Division sales as a percentage of consolidated sales of real estate, as selling
and marketing expenses are greater for the timeshare industry as compared to the
residential land business. However, as Resorts Division revenues increased at a
faster rate than the related S,G&A Expense, the Company's operating margin
increased from 8.2% in the 1998 Quarter to 11.6% in the 1999 Quarter.
INTEREST EXPENSE
Interest expense totaled $1.7 million and $3.7 million for the 1998 Quarter and
1999 Quarter, respectively. The 125.7% increase in interest expense for the 1999
Quarter was primarily due to an increase in the average outstanding debt balance
from $99.1 million to $161.4 million during the 1998 Quarter and 1999 Quarter,
respectively. The increase in the average debt balance is primarily due to
approximately $26.0 million of debt incurred or assumed in connection with the
acquisition of RDI, $15.5 million of debt incurred or assumed by BPNV, the $21.7
million net increase in debt in connection with the issuance of the Company's
$110 million senior secured notes payable and increased borrowings associated
with the Company's receivable-backed notes payable and the acquisition and
development of the Company's resort and residential land projects since June 29,
1997.
PROVISIONS FOR LOSSES
The Company recorded provisions for loan losses and for real estate taxes and
other costs associated with delinquent customers of $311,000 and $293,000 during
the 1998 Quarter and 1999 Quarter, respectively. The slight decrease in the
provision is attributable to a decrease in Resorts Division loans due to the
sale of $32.4 million of timeshare notes receivable on June 26, 1998, offset by
the overall increase in the notes receivable balance since June 29, 1997 caused
by increased sales of Timeshare Interests by the Resorts Division.
20
<PAGE> 21
The allowance for loan losses by division as of March 29, 1998 and June 28, 1998
is (amounts in thousands):
March 29, 1998
- --------------
<TABLE>
<CAPTION>
RESIDENTIAL LAND
RESORTS DIVISION DIVISION TOTAL
<S> <C> <C> <C>
Notes Receivable $67,430 $14,459 $81,889
Less: Allowance for Loan Losses (1,635) (469) (2,104)
------- ------- -------
Notes Receivable, net $65,795 $13,990 $79,785
======= ======= =======
Allowance as a % of gross notes receivable 2.4% 3.2% 2.6%
======= ======= =======
</TABLE>
June 28, 1998
- -------------
<TABLE>
<CAPTION>
RESIDENTIAL LAND
RESORTS DIVISION DIVISION TOTAL
<S> <C> <C> <C>
Notes Receivable $43,121 $13,928 $57,049
Less: Allowance for Loan Losses (1,381) (398) (1,779)
------- ------- -------
Notes Receivable, net $41,740 $13,530 $55,270
======= ======= =======
Allowance as a % of gross notes receivable 3.2% 2.9% 3.1%
==== ==== ====
</TABLE>
OTHER INCOME
Other income increased from $92,000 to $2.4 million during the 1998 Quarter and
1999 Quarter, respectively. The increase is primarily due to the $2.1 million
gain on sale of the timeshare notes receivable previously discussed and
approximately $300,000 of gains on sales of property and equipment, both
recorded during the 1999 Quarter.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased as a percentage of income before taxes
from 40.9% to 40.0% during the 1998 Quarter and 1999 Quarter, respectively. The
decrease was primarily due to state tax savings generated by a legal
restructuring of the Company's subsidiaries in a state where the Company has
significant operations.
EXTRAORDINARY ITEM
The Company recognized a $1.7 million extraordinary loss on early extinguishment
of debt, net of taxes, during the 1999 Quarter. See further discussion under
"Liquidity and Capital Resources - Note Offering".
SUMMARY
Based on the factors discussed above, the Company's net income increased from
$1.7 million to $4.1 million in the 1998 Quarter and 1999 Quarter, respectively.
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents increased $5.0 million and $38.9 million during the
1998 Quarter and 1999 Quarter, respectively.
Net cash provided by the Company's operations was $5.1 million and $27.4 million
for the 1998 Quarter and 1999 Quarter, respectively. The increase in cash flow
from operations during the 1999 Quarter was primarily due to a net increase of
$25.4 million from the sale and hypothecation of the Company's notes receivables
during the 1999 Quarter as compared to the 1998 Quarter and a $1.9 million
increase in net income (before the extraordinary loss on early extinguishment of
debt and the gain on sale of notes receivable), during the 1999 Quarter.
Net cash used by investing activities was $682,000 and $2.1 million for the 1998
Quarter and 1999 Quarter, respectively. The increase in cash used by investing
activities during the 1999 Quarter was primarily due to an
21
<PAGE> 22
additional $2.2 million in purchases of property and equipment primarily for
furniture and leasehold improvements at the Company's new corporate
headquarters. This was partially offset by $872,000 of proceeds from the sale of
fixed assets during the 1999 Quarter, primarily the Company's corporate
airplane. The airplane has subsequently been replaced through an operating lease
arrangement.
Net cash provided by financing activities was $575,000 and $13.6 million for the
1998 Quarter and 1999 Quarter, respectively. The increase in net cash provided
by financing activities during the 1999 Quarter was due to the proceeds from the
issuance of the Company's $110.0 million senior secured notes. This increase was
partially offset by the payment of approximately $4.9 million of debt issuance
costs during the 1999 Quarter, the early extinguishment of approximately $91.8
million of lines-of-credit and other notes payable (including prepayment
penalties and accrued interest).
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital resources are provided from both internal and external
sources. The Company's primary capital resources from internal operations are:
(i) cash sales of real estate, (ii) down payments on real estate and timeshare
sales which are financed, (iii) principal and interest payments on the purchase
money mortgage loans arising from residential land sales and contracts for deed
arising from sales of Timeshare Interests (collectively Receivables) and (iv)
proceeds from the sale of, or borrowings collateralized by, notes receivable.
Historically, external sources of liquidity have included borrowings under
secured lines-of-credit, seller and bank financing of inventory acquisitions and
the issuance of debt securities. The Company's capital resources are used to
support the Company's operations, including (i) acquiring and developing
inventory, (ii) providing financing for customer purchases, (iii) meeting
operating expenses and (iv) satisfying the Company's debt, and other
obligations. The Company anticipates that it will continue to require external
sources of liquidity to support its operations and satisfy its debt and other
obligations to provide funds for future strategic acquisitions, primarily for
the Resorts Division.
NOTE OFFERING
On April 1, 1998, the Company consummated a private placement offering (the
Offering) of $110 million in aggregate principal amount of 10.5% senior secured
notes due April 1, 2008 (the Notes). Interest on the Notes is payable
semiannually on April 1 and October 1 of each year, commencing October 1, 1998.
The net proceeds of the Offering were approximately $106.3 million. In
connection with the Offering, the Company repaid the $22.1 million short-term
borrowing from the two investment banking firms who were the initial purchasers
of the Notes, approximately $28.9 million of line-of-credit and notes payable
balances and approximately $36.3 million of the Company's receivable-backed
notes payable. In addition, the Company paid aggregate accrued interest on the
repaid debt of approximately $1 million and $2.7 million of prepayment
penalties. The remaining net proceeds of the Offering will be used to repay
other obligations of the Company and for working capital purposes. In connection
with the Offering, the Company wrote-off approximately $692,000 of debt issuance
costs related to the extinguished debt and recognized a $1.7 million
extraordinary loss on early extinguishment of debt, net of taxes.
CREDIT FACILITIES FOR TIMESHARE RECEIVABLES AND TIMESHARE INVENTORIES
The Company has maintained various credit facilities with financial institutions
that provided for receivable financing for its timeshare projects. In connection
with the Offering, the Company retired all outstanding indebtedness related to
timeshare receivable and inventory financings, except for debt associated with
receivables previously sold to financial institutions with recourse by RDI and
debt related to Aruba, which were approximately $6.7 million and $14.5 million,
respectively at June 28, 1998. The Company terminated the existing credit
facilities for timeshare receivable and inventory financings concurrent with the
closing of the Offering.
The Company is currently negotiating a two-year, $35 million timeshare
receivables warehouse loan facility with a financial institution. Loans under
the warehouse facility are anticipated to bear interest at LIBOR plus 2.35%. The
warehouse facility will have detailed requirements with respect to the
eligibility of receivables for inclusion and other conditions to funding. The
borrowing base under the warehouse facility is anticipated to be 95% of the
outstanding principal balance of eligible notes arising form the sale of
completed Timeshare Interests. The warehouse facility will include affirmative,
negative and financial covenants, and events of default. There can be no
assurances that the final warehouse facility will be obtained or that the final
negotiated terms will be identical the terms described above.
22
<PAGE> 23
On June 26, 1998, the Company executed a timeshare receivables purchase facility
from the same financial institution. Under the purchase facility (the Purchase
Facility), a special purpose finance subsidiary of the company will sell up to
$100 million aggregate principal amount of timeshare receivables to the
financial institution in a securitazation transaction. The Purchase Facility has
detailed requirements with respect to the eligibility of receivables for
purchase. Under the Purchase Facility, a purchase price equal to approximately
97% (subject to adjustment in certain circumstances) of the principal balance of
the receivables sold will be paid at closing in cash, with a portion deferred
until such time as the purchaser has received a return equal to the
weighted-average term treasury rate plus 1.4% and all servicing, custodial and
similar fees and expenses have been paid. Should the Company fail to sell to
such financial institution during the term of the Purchase Facility notes
receivable with cumulative present value of at least $100 million, the return to
the purchaser will increase by .05% for each $10 million shortfall, to a maximum
applicable margin of 1.60%. The Company's special purpose finance subsidiary
will be required to maintain a specified overcollaterlization level and a cash
reserve account. Receivables will be sold without recourse to the Company or its
special purpose finance subsidiary except for breaches of representations and
guaranties made at the time of sale. The financial institution's obligation to
purchase under the Purchase Facility will terminate upon the occurrence of
specified trigger events. The Company will act as servicer under the Purchase
Facility for a fee, and will be required to make advances to the financial
institution to the extent it believes such advances will be recoverable. The
Purchase Facility includes various conditions to purchase and other provisions
customary for a securitazation of this type. The Purchase Facility has a term of
two years.
On June 26, 1998, the Company completed its first sale under the Purchase
Facility. The Company sold approximately $32.4 million aggregate principal
amount of timeshare receivables for a purchase price equal to 96.4% of the
principal balance and recognized a $2.1 million gain. As a result of the sale,
the Company recorded a $3.1 million available-for-sale investment in the
residual cash flow of the receivable pool (i.e. the deferred payment).
In addition, the Company is currently negotiating with the same financial
institution referred to in the preceding paragraphs to provide the Company with
a $25 million acquisition and development facility for its timeshare
inventories. The facility would include a two-year draw down period and have a
term of seven years. Principal would be repaid through agreed-upon release
prices as Timeshare Interests are sold at the financed resort, subject to
minimum required amortization. It is anticipated that the indebtedness under the
facility would bear interest at the three-month LIBOR plus 3.0%. With respect to
any inventory financed under the facility, the Company will be required to have
provided equity of at least 15% of the approved project costs. In connection
with the facility, the Company will also be required to pay certain fees and
expenses to the financial institution.
CREDIT FACILITIES FOR RESIDENTIAL LAND RECEIVABLES AND RESIDENTIAL LAND
INVENTORIES
The Company has an existing $20.0 million revolving credit facility with a
financial institution for the pledge of Residential Land Division Receivables.
The Company uses the facility as a temporary warehouse until it accumulates a
sufficient quantity of residential land receivables to sell under private
placement REMIC transactions. Under the terms of this facility, the Company is
entitled to advances secured by Residential Land Division receivables up to 90%
of the outstanding principal balance of eligible pledged Residential Land
Division receivables. In addition, up to $8.0 million of the facility can be
used for land acquisition and development purposes. The interest rate charged on
outstanding borrowings ranges from prime plus 0.5% to 1.5%. At June 28, 1998,
the outstanding principal balances under the receivables and development
portions of this facility were $6.3 million and $3.9 million, respectively. All
principal and interest payments received on pledged Receivables are applied to
principal and interest due under the facility. The ability to borrow under the
facility expires in September 2000. Any outstanding indebtedness is due in
September 2002.
Over the past three years, the Company has received 80% to 90% of its land sales
in cash. Accordingly, in recent years the Company has reduced the borrowing
capacity under credit agreements secured by land receivables. The Company
attributes the significant volume of cash sales to an increased willingness on
the part of certain local banks to extend more direct customer lot financing. No
assurances can be given that local banks will continue to provide such customer
financing.
Historically, the Company has funded development for road and utility
construction, amenities, surveys, and engineering fees from internal operations
and has financed the acquisition of residential land property through seller,
bank or financial institution loans. Terms for repayment under these loans
typically call for interest to be
23
<PAGE> 24
paid monthly and principal to be repaid through lot releases. The release price
is usually defined as a pre-determined percentage of the gross selling price
(typically 25% to 50%) of the parcels in the subdivision. In addition, the
agreements generally call for minimum cumulative annual amortization. When the
Company provides financing for its customers (and therefore the release price is
not available in cash at closing to repay the lender), it is required to pay the
creditor with cash derived from other operating activities, principally from
cash sales or the pledge of receivables originated from earlier property sales.
The Company has obtained from a financial institution a $35 million revolving
credit facility. The Company expects to use this facility to finance the
acquisition and development of residential land projects and to finance land
receivables. The facility when drawn upon will be secured by the real property
(and personal property related thereto) with respect to which borrowings are
made, with the lender to advance up to a specified percentage of the value of
the mortgaged property and eligible pledged receivables, provided that the
maximum outstanding amount secured by pledged receivables may not exceed $20.0
million. The interest charged on outstanding borrowings is expected to be
approximately prime plus 1.5%. The facility includes customary conditions to
funding, eligibility requirements for collateral, affirmative, negative and
financial covenants and events of default.
The Company estimates that the total cash required to complete preparation for
the sale of its residential land and timeshare property inventory as of June 28,
1998 was approximately $159.2 million, expected to be incurred over a five-year
period. The Company plans to fund these expenditures primarily with available
capacity on existing or proposed credit facilities and cash generated from
operations. There can be no assurances that the Company will be able to obtain
the financing necessary to complete the foregoing plans.
The Company's credit facilities include certain covenants restricting, among
other things, the incurrence of debt, the payment of dividends and other
restricted payments, the incurrence of liens, and transactions with affiliates.
Certain current and future credit facilities do or will include financial
covenants. No assurances can be given that such covenants will not limit the
Company's ability to satisfy or refinance its obligations or otherwise adversely
affect the Company's operations.
SUMMARY
The Company intends to continue to pursue a growth-oriented strategy,
particularly with respect to its Resorts Division. In connection with this
strategy, the Company may from time to time acquire, among other things,
additional resort properties and completed Timeshare Interests; land upon which
additional resorts may be built; management contracts; loan portfolios of
Timeshare Interest mortgages; portfolios which include properties or assets
which may be integrated into the Company's operations; and operating companies
providing or possessing management, sales, marketing, development,
administration and/or other expertise with respect to the Company's operations
in the timeshare industry. In addition, the Company intends to continue to focus
the Residential Land Division on larger more capital intensive projects
particularly in those regions where the Company believes the market for its
products is strongest, such as the Southeast, Southwest, Rocky Mountains and
Western regions of the United States and to replenish its residential land
inventory in such regions as existing projects are sold-out.
The Company believes that the net proceeds from the Offering and anticipated
cash generated from operations, anticipated future permitted borrowings under
existing or proposed credit facilities and anticipated future sales of notes
receivable under existing purchase facilities will be sufficient to meet the
Company's working capital, capital expenditures and debt service requirements
for the foreseeable future. The Company may, in the future, require additional
credit facilities or issuances of other corporate debt or equity securities in
connection with acquisitions or otherwise. Any debt incurred or issued by the
Company may be secured or unsecured, bear fixed or variable rate interest and
may be subject to such terms as management deems prudent. There can be no
assurance that the proposed credit facilities will be consummated on the terms
described herein, if at all, or that sufficient funds will be available from
operations or under existing, proposed or future revolving credit or other
borrowing arrangements or receivables purchase facilities to meet the Company's
cash needs, including, without limitation, its debt service obligations. As
noted above the Company's credit facilities include customary conditions to
funding, eligibility requirements for collateral, certain financial and other
affirmative and negative covenants, including, among others, limits on the
incurrence of indebtedness, covenants concerning net worth, fixed charge
coverage requirements, debt to equity ratios and events of default. In addition,
the Company's future operating performance and ability to meet its financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond the Company's control.
24
<PAGE> 25
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure and
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The Company has completed an assessment
relative to the modification or replacement of portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. The total "Year 2000" project cost is estimated at
approximately $400,000, which consists of costs to be incurred to acquire
upgraded software that will be capitalized. It is anticipated that these costs
will be paid for using cash from operations.
The project is estimated to be completed not later than June 30, 1999, which is
prior to any anticipated impact on the Company's operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company from time to time
becomes subject to claims or proceedings relating to the purchase,
subdivision, sale and/or financing of real estate. Additionally, from
time to time, the Company becomes involved in disputes with existing
and former employees. The Company believes that substantially all of
the above are incidental to its business.
On November 26, 1997, an action was filed in the U.S. District Court
for the Eastern District of Tennessee against the Company. The
complaint purports to be brought on behalf of a class of current and
former timeshare sales representative employees of the Company. It
asserts claims for violations of the minimum wage and overtime
provisions of the Fair Labor Standards Act. The Company is in the early
stages of evaluating this litigation's potential impact, if any, on the
Company, and accordingly cannot predict the outcome with any degree of
certainty. Although no assurances can be given, the Company does not
believe that any likely outcome will have a material adverse effect on
the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
25
<PAGE> 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on July 28, 1998, the
shareholders voted on the matters listed below and in the proxy
materials dated June 26, 1998. The results of voting were as follows:
<TABLE>
<CAPTION>
Shares Voted
---------------------------------------------------------
For Against Abstain Total
--- ------- ------- -----
<S> <C> <C> <C> <C>
Fix number of directors of the Company for
the ensuing year at seven 14,667,563 70,655 50,205 14,788,423
Elect each of the following persons
as directors of the Company:
Joseph C. Abeles 14,646,574 141,849 - 14,788,423
George F. Donovan 14,664,135 124,288 - 14,788,423
Ralph A. Foote 14,649,545 138,878 - 14,788,423
Frederick M. Myers 14,659,133 129,290 - 14,788,423
J. Larry Rutherford 14,631,396 157,027 - 14,788,423
Stuart A. Shikiar 14,653,206 135,217 - 14,788,423
Bradford T. Whitmore 14,645,316 143,107 - 14,788,423
Approve the Company's 1998 Non-
Employee Directors Stock Option Plan 9,094,889 2,850,025 122,930 12,067,844
Approve an amendment to the Company's
1995 Stock Incentive Plan 7,453,808 4,496,334 117,702 12,067,844
Ratify the appointment of Ernst & Young
LLP as independent auditors
of the Company for the fiscal year ending
March 28, 1999 14,691,438 54,661 42,324 14,788,423
</TABLE>
In addition to the shares voted as outlined above, there were 2,720,579
broker non-votes on the propositions related to the Company's stock
option plans.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 ....... Financial Data Schedule (For SEC use only).
(b) The Company filed a Current Report on Form 8-K dated June 28, 1998
reporting under Item 5 thereof the sale of approximately $32.4 million
aggregate principal amount of timeshare loan receivables and the
execution of a Sale and Contribution Agreement and Asset Purchase
Agreement, both dated June 26, 1998 (collectively the Agreements). Such
Form 8-K included the Agreements as exhibits.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLUEGREEN CORPORATION
(Registrant)
Date: August 11, 1998 By: /s/ GEORGE F. DONOVAN
---------------------
George F. Donovan
President and
Chief Executive Officer
Date: August 11, 1998 By: /s/ JOHN F. CHISTE
------------------
John F. Chiste
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1998 By: /s/ ANTHONY M. PULEO
--------------------
Anthony M. Puleo
Chief Accounting Officer
(Principal Accounting Officer)
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 69,953
<SECURITIES> 14,088
<RECEIVABLES> 75,753
<ALLOWANCES> 2,525
<INVENTORY> 109,530
<CURRENT-ASSETS> 0<F1>
<PP&E> 27,341
<DEPRECIATION> 7,758
<TOTAL-ASSETS> 301,122
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 183,078
0
0
<COMMON> 209
<OTHER-SE> 74,668
<TOTAL-LIABILITY-AND-EQUITY> 301,122
<SALES> 55,658
<TOTAL-REVENUES> 61,897
<CGS> 20,868
<TOTAL-COSTS> 23,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 293
<INTEREST-EXPENSE> 3,745
<INCOME-PRETAX> 9,597
<INCOME-TAX> 3,839
<INCOME-CONTINUING> 5,740
<DISCONTINUED> 0
<EXTRAORDINARY> (1,682)
<CHANGES> 0
<NET-INCOME> 4,058
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.17
<FN>
<F1>THE COMPANY HAS AN UNCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
